Swiss Re to focus on high-growth markets to combat price pressures

(Reuters) — Swiss Re Ltd. said it can cope with increased competition from pension funds and other new players in its industry by putting greater focus on more resilient high-growth markets such as Asia.

Reinsurers like Swiss Re and rivals Munich Reinsurance Co. and Hannover Re S.E., which help primary insurers cover the cost of big claims, are facing pressure on prices as a result of competition from the new entrants.

Ultra-low interest rates since the financial crisis have attracted investors such as pension funds, institutional investors and high-net worth individuals known as "alternative capital" to pour money into the reinsurance market in search of higher returns.

Swiss Re Chief Financial Officer David Cole said he expected the downward price trend seen in previous periods to continue when reinsurance contracts with Swiss Re's insurance company clients are renewed in July.

But while prices in mature markets have come under pressure, prices in high-growth markets, where Swiss Re earns about one-fifth of its premiums, have shown more resilience, Mr. Cole said during a call with journalists ahead of the company's investor day in London on Thursday.

Swiss Re said it would put greater emphasis on a selection of these high-growth markets.

"Current pricing pressures that we see in certain lines of business, typically coming from developments in alternative capital, at this point have not significantly impacted high- growth markets," Mr. Cole said.

Brokers said this week that reinsurance prices had fallen by as much as 25% in key markets at the midyear point as pension funds poured in money and demand for cover from insurance companies remained subdued.

Credit rating agency Moody's changed its outlook on the reinsurance sector to negative from stable last month, in part due to the industry's weak pricing power.

Mr. Cole said the company expected clients to continue to turn to reinsurers for services and long-term support.

"Consequently, we believe that alternative capital is unlikely to replace the traditional reinsurance market, although it may have a disproportionate impact on some, perhaps less well positioned reinsurers," he said.

The Zurich-based reinsurer also said it was acquiring Chinese insurer Sun Alliance Insurance China Ltd., a subsidiary of RSI Insurance Group, for £71 million ($120.81 million), allowing it to sell corporate insurance directly from mainland China.

Emerging Asian countries in particular are expected to lead real premium growth with around 9% in the next few years, outpacing premium growth of around 3% in mature markets, the company said.

Swiss Re said it would redeploy its excess capital only if it satisfied a target return on equity of at, or above, 11%, otherwise it would return capital to shareholders. The company did not specify where it might invest or spend the excess capital.

The reinsurer, which recorded a profit of $1.2 billion for the first three months of the year, raised its dividend in 2013 to 3.85 Swiss francs ($4.32) a share and paid a special dividend of 4.15 francs ($4.66) per share.

Analysts at Main First Bank forecast an increase in ordinary dividend to 4.25 Swiss francs ($4.77) per share, but a reduced special dividend to 1.75 Swiss francs ($1.97) per share for 2014.

"We have a primary goal to at least maintain the regular dividend," Mr. Cole said, adding that there were quite a number of opportunities to redeploy funds in 2014 and 2015.

Swiss Re said it would announce its 2016 financial goals in February and confirmed that it was on track to meet its 2011-2015 targets.

The company's shares were trading up 0.1% by 1225 GMT, underperforming a 0.6% rise in the European insurers index.